First quarter M&A results for financial advisory firms

Surprises, rebounds and momentum dominate RIA M&A in Q1

April 9, 2019 2:31 PM

Surprises, rebounds and momentum characterized RIA M&A activity in the first quarter.

Perhaps the biggest surprise was NFP’s acquisition of Bronfman Rothschild, followed by the entry of Creative Planning, the $39 billion RIA behemoth that heretofore focused on organic growth, into the M&A market.

Another surprise: the purchase of M&A investment banking firm Silver Lane Partners by none other than IBD giant Raymond James.

As for rebounds, United Capital led the way with acquisitions of two RIAs with a total of $800 million in AUM after completing only three deals in 2018.

Beacon Pointe Wealth Advisors also rebounded with a $392 million deal after making no acquisitions last year.

Momentum from a record-breaking 2018 was also evident in the first quarter’s volume and quality of deals. There were 33 wealth management transactions totaling $130 billion from January through March, according to Fidelity’s most recent Wealth Management M&A Transaction Report.

What's more, the appetites of private equity firms and strategic buyers for advisory firms appears to be unabated despite intense competition and rising valuations.

Deals in the first quarter have been smaller than in 2018, averaging around $600 million, down from around $1 billion last year, according to DeVoe & Co.

But the volume of deals signaled what Dan Seivert, CEO of Echelon Partners, calls “the thawing of the iceberg,” that is, an increased willingness of older advisors to sell who previously had held out for yet another year of healthy cash flow.

Here are some highlights from Q1:

Guess who’s back?

NFP, one of the original RIA aggregators in the early 2000s, jumped back into the M&A market in a big way, agreeing to acquire Bronfman Rothschild and the RIA’s $6 billion in AUM.

An insurance broker, employee benefits consultant and wealth management conglomerate, NFP will combine Rockville, Maryland-based Bronfman with another RIA that it owns, Sontag Advisory. Sontag is based in New York City and has over $5 billion in AUM.

While NFP’s re-emergence as a buyer raised eyebrows, perhaps Bronfman’s willingness to sell shouldn’t have been so surprising.

Neal Simon, the firm’s CEO before he stepped down last year to run for a U.S. Senate seat in Maryland as an independent, was also the founder of Highline Wealth Management, which, like Bronfman, positioned itself as an RIA buyer.

But Highline was in turn bought by Bronfman in 2015, and Simon became one of the firm’s largest shareholders. And after making a number of acquisitions in 2016 and 2017, Bronfman made no deals in 2018 and became a seller this year — at the top of the market.

Look who’s in the game now

It isn’t easy to be under the radar and have more than $36 billion in AUM, but Creative Planning has managed to do it.

One reason has been a focus on organic growth for 15 years. But that phase of the RIA’s evolution is over, says President Peter Mallouk.

Creative Planning made its first M&A deal ever in the first quarter, acquiring the Johnston Group, a Minneapolis firm with $500 million in AUM. Mallouk says he is talking to several other prospects and hopes to use M&A to more than double Creative Planning’s AUM in the next several years.

The firm has doubled the size of its workforce to 600 in the past year and rebuilt its technology infrastructure. It has also busted out of its previous headquarters' 30,000-square-foot capacity to a new building with 175,000 square feet in Overland Park, Kansas. Half of that space sits empty, ready to absorb a wave of new hires.

Mallouk is also investing millions of dollars in a national television campaign to boost brand awareness for Creative Planning.

Note to other RIAs: Watch out.

Bulking up

United Capital is one of the industry’s largest aggregators, with nearly 70 acquisitions completed since 2005. But last year the company, headed by founder and CEO Joe Duran, only closed on three deals.

Not coincidentally, United was busy investing heavily in its proprietary behavioral finance-based FinLife platform, featuring the MoneyMind financial planning software.

The RIA giant has now returned its attention to inorganic growth in a big way, acquiring Irongate International, based in Moline, Illinois, and Peachtree Investment Advisors in Atlanta, with assets of $455 million and $345 million respectively.

Not coincidentally, Duran is currently negotiating with investors who are looking closely at United’s assets as he seeks to sell equity in the firm and recapitalize.

Savvy strategic buyer

Captrust Financial Partners didn’t make any deals in the first quarter, but the RIA did announce a transaction it finalized at the end of 2018 with Watermark Asset Management, a Bay Area firm with $408 million in AUM.

That deal gave Captrust five transactions overall for the year, making the RIA the biggest buyer not connected with a private equity firm.

As an owner-operated firm, Captrust “can be very selective in who to partner with,” says M&A investment banker David Selig. “They can grow as fast or as moderately as they like because they're not beholden to return requirements of a PE investor.”

And Captrust, which has bought 33 firms in the past 12 years and has just under $10 billion in AUM, intends to keep growing fast says Rick Shoff, managing director of the RIA’s Advisor Group.

Shoff says he expects Captrust to close on at least five deals this year. The firm’s long-term goal is to match the reach of the National Football League and have offices in the country’s top 35 metropolitan markets, he says.

Off the sidelines

A familiar figure at M&A conferences, Matt Cooper is rolling up his sleeves again.

After 15 months of inactivity, the Beacon Pointe Wealth Advisors president is back in the M&A hunt.

Beacon Pointe has made 12 acquisitions since 2011, but didn’t do any deals in 2018. Instead, the Newport Beach, California-based RIA, which has over $2 billion in AUM, spent the year undergoing an internal restructuring after buying out senior partner Garth Flint, according to Cooper.

The firm bought Heller Wealth Advisors, a Summit, New Jersey-based RIA with $392 million in assets under management and hopes to makes several more acquisitions this year, targeting the mid-Atlantic region, northern Virginia, Florida and the Midwest.

Looking ahead

The consensus in the M&A community is full speed ahead.

“It’s still a strong sellers’ market,” says Scott Slater, vice president of practice management and consulting for Fidelity Clearing & Custody Solutions.

Beacon Pointe President Matt Cooper (pictured above) expects the M&A market for RIAs to remain “extremely competitive” with elevated valuations. Even a “reasonable” stock market correction is unlikely to dampen the appetite for available RIAs, he maintains.

“There’s too many dollars chasing too few platforms,” Cooper says.

Echelon Partners CEO Dan Seivert agrees.

“We believe more entrepreneurs will be motivated to hit the highs associated with this business cycle,” he says. “[Owners] don’t want to risk a downturn and potentially take five to six years to recover to valuations currently being observed.”

And M&A consultant David DeVoe says keep an eye on HighTower Advisors.

HighTower bought an undisclosed equity stake in Memphis, Tennessee-based Green Square Wealth Management in February.

Newly-installed HighTower CEO Bob Oros will be able to attract “more and more RIA partners,” DeVoe contends. “The combination of Oros’ leadership and [chairman] Elliot Weissbluth’s sales acumen makes HighTower a key firm to watch.”